Coal traders power foreign asset buys

The rush to own coal assets is leading to innovative alliances. are teaming up with utilities like ,Reliance Power and CESC to jointly scout for overseas coal to bring down the cost of acquisition and also speed up the process of buying mines. “We are talking to mega power companies, including the Tatas, to look for joint acquisition of coal assets,” said Ahmed Buhari, founder president of Coal &Oil (C&O) Group, a Rs 2,000-crore company that imports more than 6 million tonnes of coal for its Indian users. 

C&O Group is one of the leading suppliers of steam coal for companies such as the Tatas, Reliance Power, CESC, Gujarat Ambuja, Madras Cements and others. It also has long-term contracts with power producers that ensure continuous supplies for 7-10 years. When contacted by ET, utility companies declined to comment on the issue. Some of these trading companies are also negotiating with utilities for an equity stake in return for supply of coal. The Singapore-based Middle East Coal, another trading company that has ownership of mines in Indonesia, has been negotiating with major Indian firms for securing a stake. 

In an earlier interaction with ET, Middle East Coal vice-chairman Madhu Koneru said the supply of coal would be finalised for a 10-12 year period to ensure that power producers complete their projects. “It would also keep the prices down as contracted prices would typically be at cost level,” said Mr Koneru. 

Demand for imported coal in India, which is widely used by power generators and steelmakers, has soared by about 16% over the past five years and is expected to rise more as companies use more of imported coal instead of Indian coal, due to the high ash content in the local resource. The tight demand for coal has inflated the valuations of mines as global players are ready to offer higher prices for a stake in resource assets. 

China is an active player here as the country's power plants buy and stockpile coal ahead of the winter and the summer to meet increasing demand. In August, in one of the largest acquisitions of a coal mine by an Indian company, the Ahmedabad-based Adani Enterprises bought Australia's Linc Energy's coal assets for Rs 12,600 crore in a cash-cum-royalty deal. 

State-owned utility NTPC, which expects to import up to 15 million tonnes of coal next year, has also been active in buying coal mines overseas. Last month, NTPC said it plans to buy stakes in two Indonesian coal mines and will also invite global bids for more such assets. 

Indian users import coal from countries like Australia, South Africa, and Indonesia, where most of the coal trading is also done. Indian players, rattled by tight supplies, are keen to leverage existing contracts that the traders have with their miners. “We have been in the coal trading business for 17 years and have long-term supply agreements with mine owners. We, therefore, want to be associated with top-notch companies to extend this agreement,” said Mr Buhari. 

The arrangement will also benefit trading companies as these are building power plants themselves. C&O is building a 1,200 megawatt power plant at Tuticorin in Tamil Nadu and is also investing in Chennai-based Meenakshi group that has interests in power and infrastructure. 

The power sector is one of the largest consumers of coal in India, accounting for 71% of the country's coal demand, which is met through linkages with Coal India and Singareni Collieries.